The EBRD's Early Transition Countries Initiative

Early Transition Countries Initiative Financing Facilities

To facilitate the Early Transition Countries Initiative's reach, two new forms of private financial tools have been introduced to stimulate market activity, along with an existing but modified small size equity financing ability. These tools rely upon a streamlined approach to finance projects, where the Bank's participation ranges from €0.5 million to €4 million.

  • The Direct Loan Facility finances expansion, modernisation and acquisition projects in the private sector and provides working capital from €0.5 million to €10 million.
  • The Medium-sized Co-financing Facility provides co-financing alongside local banks for up to 50 per cent of the loan to selected enterprises.
  • The Direct Investment Facility allows the EBRD to support direct equity investments ranging from €0.5 million to €6 million in local enterprises.

Direct Loan Facility (DLF)

The Direct Loan Facility provides the Bank with an instrument to meet the gowing demand for medium-sized loans, with medium to long-term maturities, in Early Transition Countries which cannot be met by the EBRD's available intermediate programmes, i.e. SME credit lines, Trade Facilitation Programmes and the Medium-sized Co-financing Facility with local banks, or by the local banks directly.

The DLF is designed to target commercially viable private sector businesses with a proven track record and sound credit history. These companies should have sound reputation, integrity, corporate governance practices, adequate management capacity and sound financial structure. The loan proceeds will be used by clients for the financing of acquisitions, expansion and/or modernization investments and working capital.

Main Terms

  • Individual loan size: €0.5 - 10 million
  • Maturity: up to 6 years with up to 2 year grace period
  • Currency: US$ or €
  • Pricing: in line with local markets

Technical co-operation and/or grant funding is available to EBRD to fund project due diligence and post investment advisory assistance on a selective basis where clear needs have been identified.

Medium-Sized Co-financing Facility (MCFF)

The Medium-Sized Co-financing Facility with local banks was established as a new regional framework to be provided to leading commercial banks in the early transition countries (ETCs). The MCFF is designed to meet the financing needs of successful medium-sized private companies in the ETCs that have begun to outgrow the countries’ financial sector. The ability of local banks to support the growth of successful companies is often constrained by single-borrower exposure limits imposed by the countries’ central banks or by the local banks’ internal guidelines introduced to avoid the risk of loan portfolio concentration.

EBRD co-financing takes the form of funded or unfunded risk participation by the EBRD in a portion of the local banks' sub-loans to their best clients. The MCFF offers local partner banks (“PBs”) a combination of credit lines with a full recourse to the PB (the “Full Recourse Portion”) and a risk-sharing participation in sub-loans where EBRD takes risk of the ultimate borrowing enterprise. The EBRD’s risk-sharing participation should not exceed 50 per cent of each sub-loan (in exceptional cases, it may be increased to 66.7 per cent).

Main Terms

  • Facility structure: Funded or unfunded risk participation under an individual co-financing facility with a partner bank
  • EBRD’s risk participation: up to 50% in each sub-loan
  • Size of each sub-loan (including full recourse and participation): maximum €10 million.
  • Maximum maturity of each sub-loan: up to 5 years

Technical co-operation and/or grant funding is available to participating Bank and the EBRD to fund project due diligence on a selective basis where a clear needs has been identified.

Direct Investment Facility (DIF)

The Direct Investment Facility is an equity driven programme which focuses on supporting local enterprises. DIF's purpose is to provide financing in the form of equity and, under appropriate circumstances quasi-equity, to private sector businesses led by motivated and experienced entrepreneurs, who are otherwise unable to find appropriate capital to support commercially promising activities in the Early Transition Countries and elsewhere in the EBRD's countries of operation. Investments are in the range of €0.5 million to €6 million, and where appropriate for commercial or risk-sharing reasons, DIF is open to co-investment with third party funds. The characteristics of projects which would utilise such funds include:

  • Experienced sponsors and management with a proven track record and a clear understanding of equity
  • Sound financial basis and well-structured financing and business plans
  • Significant growth potential with relatively modest capital investment
  • Clear programme for project implementation within a relatively short time span
  • Realistic exit strategy
  • Prospective investment returns which are appropriate to equity and commercial risk

Main Terms

  • Generally €0.5 million to €6 million
  • Equity share target range is typically 25-30% but can reach up to 49% in the short-term
  • Preferred investment span is 3-5 years, but up to 7 years is possible.

Technical co-operation and/or grant funding is available to EBRD to fund project due diligence, post-investment advisories on a selective basis where a clear needs has been identified.

Direct equity investment

The EBRD's Direct Investment Facility (DIF) demonstrates the viability of smaller businesses based in countries and regions at an early stage in the transition to the market economy. Equity and limited debt financing are available to attractive private sector businesses, especially those led by motivated and experienced local entrepreneurs. Investments may be in existing enterprises proposing to expand their businesses or product lines, or start-ups with an unusually strong business plan and sponsors with relevant business experience. Sponsors may contribute capital at least partially in kind, but are expected to make reasonable cash contributions as well.

Through DIF, the EBRD will consider any opportunity to provide new equity capital. Typical cases that can benefit are:

  • Fast growing companies that cannot expand with debt finance alone
  • Locally owned companies whose balance sheets require strengthening in order to enable them to take on additional debt
  • Companies led by motivated and experienced local entrepreneurs

Investment terms

  • Investment range generally between EUR 500,000 and EUR 6 million
  • Equity share target range is 25-30% but up to 49%
  • Preferred investment span is 3-5 years, but up to 7 years is possible
  • Flexible financing package including equity and debt (usually subordinated)
  • Clear prospect of exit through joint sale with other shareholders to third party or sale back to other shareholders

Project requirements

  • Significant growth potential
  • Experienced sponsors and management with a proven track record
  • Strong competitive prospects in relevant local/regional markets
  • Sound financial basis and well-structured financing plans
  • Well-developed and specific business plans
  • Evidence of capacity to implement business plans
  • Realistic entry valuation
  • Willingness to share corporate governance including EBRD Board membership and role for EBRD in key strategic decisions
  • Realistic exit strategy that will provide a performance based return for the EBRD
  • Prospective investment returns which are appropriate to equity and commercial risk